No, we do not recommend advancing money from a borrower’s escrow account to pay for attorney’s fees, property preservation costs or utilities.

Even if a loan is not governed by the HUD guidance that you identified (which applies only to FHA-insured loans), we believe that the same principle would apply to non-HUD loans. Escrow account funds should be used only to pay items for which funds are expressly being escrowed, such as property taxes, assessments and insurance.

Your loan agreement with a customer should designate the items that the escrow funds will cover. For example, the most recent version of the Fannie Mae/Freddie Mac Uniform Note for Illinois permits a lender to use escrow funds only for taxes and assessments, leasehold payments or ground rents, and certain insurance premiums. Using escrow proceeds to pay for expenses unrelated to those items likely would violate your agreement with the customer and create other problems (for example, by reducing the escrow account balance and making the funds unavailable for paying property taxes and other escrow items).

For resources related to our guidance, please see:

• HUD Handbook 4330.1, Administration of Insured Home Mortgages, Paragraph 2-5 (“Escrow funds shall be used only for the purpose for which they were collected . . . . Late charges, attorney’s fees (incurred in foreclosure actions which are not completed), inspection fees, mortgage delinquencies or refunds of overpaid subsidy, etc., shall never be collected by deducting the amount from the mortgagor’s escrow account.”)

• Fannie Mae/Freddie Mac Uniform Instruments, Notes, Single Family, Illinois (Section 3, page 4: “Borrower shall pay to Lender on the day Periodic Payments are due under the Note, until the Note is paid in full, a sum (the “Funds”) to provide for payment of amounts due for: (a) taxes and assessments and other items which can attain priority over this Security Instrument as a lien or encumbrance on the Property; (b) leasehold payments or ground rents on the Property, if any; (c) premiums for any and all insurance required by Lender under Section 5; and (d) Mortgage Insurance premiums, if any, or any sums payable by Borrower to Lender in lieu of the payment of Mortgage Insurance premiums in accordance with the provisions of Section 10. These items are called ‘Escrow Items.’”)